CITY OF FORT BRAGG
2021 LRB & CALPERS UNFUNDED ACCRUED LIABILITY (UAL)
UPDATE
MARCH 15, 2023
2 Presentation Objectives
Recap of 2021 Financing Project
Credit Rating Highlights
Recent Changes
$3.5M Bond Redemption
CalPERS Underperformance
Strategies for Continued CalPERS UAL Cost Management
3 Recap of 2021 Lease Bond Objectives & CalPERS UAL Trends The City’s UAL had grown rapidly (like all other agencies in California) from $5.5M in 2014 to about $11.4M in 2021
UAL was projected to drop to between $8.2M and $9.9M after strong CalPERS investment returns of 21.3% in FY 2021 and discount rate reduction (was unknown at time of issuance) City also wanted to fund $3.5M Mill Site Project while preserving cash/reserves In the Fall of 2021, the City issued $11.4M of Lease Revenue Bonds to (1) refinance/restructure close to 100% of the projected UAL and (2) fund Mill Site Project Mill Site Project portion of bond had “full flexibility” to pay off early at no penalty City also achieved a strong inaugural credit rating with S&P Global Ratings (“AA-” Issuer Credit Rating) Key Changes Since Fall 2021
Discount rate reduced to 6.8% from 7.0%
City used $3.5M of unspent bond proceeds to pay off debt In FY 2022, CalPERS posted a -7.5% investment loss and is currently at 0% returns; could drive UAL back to $8.4M Looking forward, it is important for the City to develop a holistic strategy for managing its debt liabilities (CalPERS UAL & 2021 LRB) while maintaining strong reserves and financial resiliency City prudently maintains a Section 115 Trust for pensions with an approximate $1.6M balance 4 STRATEGY AT ISSUANCE
UAL Restructuring Strategy & CIP Funding to Minimize Budgetary Impact ≈70% of UAL refinanced (dark
grey bars) to create overall
lower/smoother debt
payments for General Fund
Effectively 100% of UAL once
CalPERS adjusted UAL for 21.3%
returns and discount rate
reduction
No budgetary impact even
with $3.5M Mill Site Portion
(light grey Bars) of debt
payments
Financing team built in full
flexibility to pay down this
portion of debt early if not
needed for Mill Site Project
$1.5M of projected savings
(present value) from
refinancing UAL from 6.8%
down to 3.6%
Note: Estimated UAL payments sourced from CalPERS Outlook Tool $-
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
2013201420152016201720182019202020212022202320242025202620272028202920302031203220332034203520362037203820392040204120422043204420452046204720482049205020512052 Millions
Payments on Site Acquisition Historical & Projected Unrefunded UAL UAL Bond Debt Service Historical & Projected UAL (6.5%) + Payments on Site Acquisition 5 Economy, 30%
Management, 30%
Finances, 40%
Core Metrics of Fiscal Sustainability
Metrics include median
household income, per
capita effective buying
income, assessed values,
diversity of tax base, etc.
Policies and practices
“AA-” Issuer Credit Rating and “A+” Lease Bond Rating
Criteria and Highlights
Economy:
Adequate; below average wealth/income levels
Stable property tax base
Finances:
Very strong budgetary flexibility
Very strong liquidity
Adequate debt burden
Management:
Strong management, with good financial policies
and practices
Use of historical trend analysis in budget process
and regular quarterly budget and investment
portfolio reviews with city council
Strong Institutional framework
Metrics include
budgetary performance,
budgetary flexibility,
liquidity, debt and
contingent liabilities
2021 LRB – “A+” Credit Rating Highlights
6 Key Update #1
$3.5M Unspent Bond Proceeds Used to Pay Down Bonds in August 2022 2021 LRBs
maintained an
extraordinary
mandatory
redemption feature
for unexpended &
surplus bond
proceeds
In August 2022, the
City paid down
$3.5M of bond
proceeds
Paydown saves the
City $1.7M in
interest payments
through 2044
$-
$0.1
$0.2
$0.3
$0.4
$0.5
$0.6
$0.7
$0.8
$0.9
$1.0
2022202320242025202620272028202920302031203220332034203520362037203820392040204120422043204420452046 Millions
Historical & Projected Unrefunded UAL 2021 LRB (Post-Paydown) Prior LRB + UAL Payments 7 2023:
$8.4M
2022:
$5.2M
2021:
~$0
11/2021
(LRB):
$3.4M
2020:
$11.4M
UAL
Balance
(FYE):
Returns: 4.7% -- 21.3% -7.5% 0.0% (est.)
Key Update #2
CalPERS Returned -7.5% in FY 2022 and Currently at 0% for FY 2023 Source: CalPERS Pension Outlook Tool
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
2018201920202021202220232024202520262027202820292030203120322033203420352036203720382039204020412042204320442045 Millions
UAL Payments (6/30/2021
Actuarial Valuation)
New UAL Payments from
-7.5% FY 2021-22 Returns
New UAL Payments from
Hypothetical 0.0% FY
2022-23 Returns
Historical UAL
Payments
2021 LRB
Remaining DS
City’s UAL payments had
grown to $900K by FY 2022
With the remaining 2021
LRB, total LRB + UAL
payments will reduce to
under $620K through FY
2025
However, the -7.5% returns
from CalPERS in FY 2022
projects to increase the
UAL back to $5.2M and
payments to over $1.1M
At currently estimated 0%
returns for FY 2023, the
City’s UAL would increase
to $8.4M and payments to
over $1.4M
City should have budgetary
capacity to set aside funds
into Section 115 Trust to
get ahead of rising costs
8 RECOMMENDATION
Use 115 Trust to Smooth Out Future Peak in Payments
$1.6M current balance in
Section 115 Trust in FY 2023
Assuming an additional
$1.6M is contributed over
the next four years @ 5.00%
returns rate (green bars), funds could be withdrawn
from the Section 115 Trust
during higher payment years
to stabilize net impact to the
General Fund
Annual contributions + debt
payments total $1.1M
From 2028 – 2044, the City
could use grown Section 115
Trust funds to continue
maintaining net UAL
payments at $1.1M
Generates $2.2M of net
savings
Increased earnings potential
vs. current General Fund
investments
$-
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
20232024202520262027202820292030203120322033203420352036203720382039204020412042204320442045 Millions
2021 LRB Debt Service Projected UAL Payments (CalPERS Pension Outlook Tool)* Section 115 Trust - Additions Net UAL Payments & Deposits
QUESTIONS